American Boondoggle Meets Chinese Methods

Arnold Schwarzenegger, when he was Governor of California, used to go on begging missions to China; the state was running out of moolah, and he was trying to round up some investments (this year, it’s Gov. Jerry Brown’s turn). What they got was Shenzhen-based BYD, in which our favorite Uncle Warren Buffett, via Berkshire Hathaway, quickly took a 9.9% stake in 2009.

A deal was announced in April 2010, after 18 months of begging. BYD would set up its North American headquarters in Los Angeles. It would build a manufacturing plant for solar panels, electric batteries, and electric cars nearby. It would employ 150 people in the first year and could hire up to 2,000 more people in the following years. It would spend $100 million on construction and create 1,600 construction jobs. And taxpayers would cough up massive subsidies.

“With all that Los Angeles was offering, it was hard to refuse coming here,” BYD Chairman and billionaire founder Wang Chuan-fu gloated at the press conference. Schwarzenegger hyped California’s “market-friendly energy and environmental policies” and smiled victoriously. “This is just the start,” added L.A. Mayor Antonio R. Villaraigosa. “BYD will be creating the high-paying green-collar jobs that we want….”

Today, BYD’s headquarters is in a refurbished building in downtown L.A. The manufacturing site in Lancaster, a suburb of L.A., is an RV plant that had been closed. Nothing was built. “The plant is still mostly vacant save for a small number of local workers,” reported the New York Times. And “three engineers from China were working to install factory equipment.” In total, fewer than 40 people are working for BYD in California – and even fewer Americans. What has come to California are BYD’s Chinese workers, and they got paid $1.50 per hour, plus a $50/day allowance.

“You cannot pay people in Chinese dollars with Chinese standards while they are doing work in America,” state labor commissioner Julie Su told the Times. “If this is the tip of the iceberg, you could see this ruining all kinds of industries.”

After an investigation, BYD was fined $99,245 for, among other things, minimum wage violations and failure to provide workers’ comp insurance. “Workers in this kind of underground economy may not know what their rights are,” Su pointed out. “It doesn’t matter where a company is based, if an employee is working here, the company has to abide by California law when they’re doing work in California. In no scenario is it permissible to cycle people through to get around our state’s laws.”

But BYD’s Chinese execs didn’t seem to think so. They said they’d appeal the citation, as the Times put it, “arguing that Chinese workers here on legal work visas are not subject to state labor laws, including the minimum wage.”

BYD has signed contracts this year to supply 35 K9 battery-powered electric buses to Long Beach and Los Angeles. $40 million are at stake. BYD is also testing a bus in Manhattan. Currently, it builds these buses in China. But the contracts stipulate that the buses meet “Buy America” procurement guidelines: final assembly must be in the US, and US content, at least on paper, must be 60% of the cost of the bus.

At the end of April, BYD announced with fanfare that it would build the buses and the iron-phosphate batteries that power them in Lancaster, starting May 1. It might employ a few dozen people. “We are starting small,” said Stella Li, BYD senior vice president. The Wall Street Journal noted at the time: “But the benefits of BYD’s move will be immediate, allowing it to sell its buses to local transit companies at a huge discount – with the federal government picking up the rest of the tab.”

Taxpayers are digging deep into their pockets to support the arrangement: Federal grants for zero-emission buses and other Federal and California subsidies cover up to 80% of the cost of the buses. BYD spokesman Michael Austin admitted that subsidies were “one of the main motivations” behind the deal.

It’s not like there isn’t already an American company eager to sell electric buses: South Carolina-based Proterra, which has buses operating in a number of American cities, wanted to bid on the deal but didn’t get very far.

BYD already has a stellar record. In order to finagle the Long Beach deal, BYD had claimed that it “had already deployed several buses within the US – particularly to Apple in Cupertino and Hertz in Los Angeles,” the Long Beach Post reported in March. However, the paper checked with “several Apple and Hertz executives” and found that “the claims BYD presented to Long Beach Transit are false.” BYD also appears to have fabricated claims of units in service in Milan and Holland.

And there are performance shortcomings. A Chinese-made BYD bus did a trial run for Hertz in L.A. last December. “The company’s state-of-the-art electric buses provide a range of over 155 miles on a single charge, BYD claimed on its website. That’s important because recharging the thing takes three to four hours. However, the results of the Hertz trial that the Long Beach Post obtained showed that the bus actually had a range of only 123 miles, without using heating or air conditioning. “On a hot day with a full passenger load, the bus performance would actually result in about a 65 mile range.” Less than half the claimed range!

The bus is also way overweight due to the massive battery – so overweight that it would take a toll on streets and raise maintenance costs, according Long Beach’s Chief Traffic Engineer, David Roseman – a problem that had been known since before the contract was signed, but Long Beach Transit officials had swept it under the rug.

Then there was the debacle of testing the bus for efficiency and structural soundness at the federal Altoona Bus Research and Testing Center in Pennsylvania. With no American-made bus available, BYD had a Chinese-made bus tested there. By July 12, after six of the 17 tests, and after about 2,600 miles, visible cracks appeared above the rear door. BYD yanked the bus out of the testing program and claimed that the problem was due to crummy welding, rather than a design flaw.

Now somewhat leery, Long Beach Transit decided to have an American-made bus, when available, tested at Altoona before completing the purchase of its ten buses. This pushed the completion date – originally January 2014 – to January 2015.

When Long Beach Transit inspectors headed to China to inspect the buses, they “discovered ‘unacceptable’ issues with the bus frames, including ‘improper bracket installation’ on the bus sidewalls and roof assemblies and inconsistencies with steel subassemblies on the chassis, according to a staff report,” the Long Beach Post reported on October 8.

The company promised that it would put 20 engineers to work to figure out what to do about the flawed frame before the first bus for Long Beach Transit would be built. Turns out, that wasn’t true either, as the paper found out: “A staff report indicates that the frame for LBT’s pilot bus has already been built and inspected.”

BYD stands for “Build Your Dream.” And maybe that’s what they’re trying to do in China. But here they’re building a nightmare, lushly funded by hapless American taxpayers – and they paid Chinese workers in California $1.50 per hour to do it. Next time Gov. Brown and et al. go on begging missions to China, they need to keep that in mind.

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